This case involves an appeal by Sherawali Coal Carrier Pvt Ltd against the order of PCIT-7, Delhi, which was framed under section 263 of the Income-tax Act, 1961. The core of the grievance lies in the PCIT’s assumption of jurisdiction under section 263 and his subsequent claim that the original assessment order dated 14.12.2017 was erroneous and prejudicial to the interests of the Revenue.
The appellant, Sherawali Coal Carrier Pvt Ltd, was assessed on 14.12.2017 at a loss, which was slightly adjusted due to late EPF deposit and other minor discrepancies. However, the PCIT later found that the Assessing Officer had failed to examine several cash transactions that violated section 40A(3), leading to the reassessment under section 263.
The tribunal’s detailed analysis highlighted the PCIT’s failure to properly justify the assumption of jurisdiction. The argument was substantially supported by references to judicial precedents and the Income Tax Act, emphasizing that the original order was not “erroneous” merely because it did not explore every potential irregularity.
The Income Tax Appellate Tribunal (ITAT) sided with the appellant, stating that the PCIT had overstepped by branding the original assessment as erroneous without proper justification. The tribunal stressed that proper inquiry was not replaced by mere suspicion or the desire to reassess. Consequently, the original assessment order was restored, marking a significant win for Sherawali Coal Carrier Pvt Ltd.
This case sets a crucial precedent on the limitations of section 263, illustrating the necessity for tax authorities to provide substantial evidence and legal basis before classifying an assessment order as erroneous. It serves as a reminder of the judiciary’s role in preventing undue reassessment, thereby protecting taxpayer rights against arbitrary decisions by tax authorities.
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